Could economists predict last year economic crisis? Can economics predict the future? Should predictability be a hallmark of good science? McCloskey raises questions about economics' methodology at his 1983 article, Rhetoric of Economics.
When I read McCloskey's article first time a couple of years ago at Microeconomics class, I didn't really appreciate it. Writing my dissertation, I am re-discovering this article, which is and should be a milestone of economic science. This article has not been seriously accepted or reviewed in economic literature, as far as I see it. McCloskey is rather famous of his sex change to female. That is unfortunate.
Rhetoric of economics basically reviews methodology of economics from the view point of post-modernism. McCloskey criticizes “modern” methods of economics. Economists claim prediction is what economic science has to do. But can economists predict? How about economic crisis last year? After the crisis, some asserted that they had predicted the crisis and warned about it without proper credentials. But whole community of economists failed in predicting without any doubt. McCloskey clearly says that it is not possible to predict within economics, and prediction is not the task of economics.
Prediction is a job that guarantees honor and power. For example, shamans of pre-historic age were highly admired by fortune-telling. So, every scholar wants to give a shot of prediction. Or at least they pretend as they know something about future. Let's be honest. We cannot predict. In particular, at social science, there are so many variables. We, social scientists, even do not know clear causal relationship among variables. It is really hard to claim causal relationship. When we do not know causal relationship, how can we predict with full confidence?
Then what economists have to do? Rather than trying to predict something, let's try to provide better policies with our knowledge. About the last year economic crisis, I will blame economists not because they could not predict the economic crisis but because they did not provide proper policy options and manage the related risks. Economists should not have stuck on their limited forecasting chart, but imagined and opened to all the possibilities of economies. They failed both.
Economists should take efforts in scenario building. They should be good in fiction writing. I would rather trust economists' guided fiction than their "scientific" forecasting. Scenario analysis was originally developed by military. Military strategists first considers all possible moves of enemies. Then they set up their defense plans according to the potential moves. These stories compose scenarios. Economists' job should be like the military strategists.
McCloskey is still alive and still productive. I should follow up on her when I have a time to do. She really opened up serious discussion of economic methodology.